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The Ohada Treaty in the Context of International Insolvency Law Developments

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The Ohada Treaty in the Context of International Insolvency Law Developments THE OHADA TREATY IN THE CONTEXT OF INTERNATIONAL INSOLVENCY LAW DEVELOPMENTS Joanna A. Owusu•Ansah Institute for Law and Finance, University of Frankfurt, Germany. [email protected] April 2004 Paper presented within the LL.M in Finance course ‘International Insolvency Law’, led by Professor Dr. Bob Wessels Institute for Law and Finance, Johann Wolfgang Goethe University, Frankfurt, Germany. © International Insolvency Institute - www.iiiglobal.org TABLE OF CONTENTS Page 1. Introduction 1 1.1 Background to OHADA 1 1.2 Overview of the OHADA Treaty 2 2. The Uniform Act Organising Collective Proceedings for 2 the Wiping off Debts 2.1 The Uniform Act and the EU Insolvency Regulation 4 2.2 Case study: Air Afrique 6 2.3 The Uniform Act and the UNCITRAL Model Law 7 Conclusion 8 Bibliography © International Insolvency Institute - www.iiiglobal.org 1. INTRODUCTION It is an accepted fact that with the globalization of world economies the constant flow of people, products and wealth across the globe has become indispensable and this has led to the opening up of continents and the fading out of strict trade barriers. With this development come the attendant effect of trade failures and its consequences on various economies and the need to lay down a standard acceptable at least between trading partners to protect the interests of their investors in such situations. It is in the light of the above that OHADA, which stands for ‘Organisation pour l’Harmonisation en Afrique du Droit des Affaires’, which translates into English as ‘Organisation for the Harmonisation of Business Law in Africa’ came into being. The African continent in the upsurge of the unavoidable effects of globalization and quest for investment opportunities found the need to update its laws to ensure security among investors and the well being of trade undertakings as a whole and this is only possible through the existence of harmonized system of business laws in the region, to avoid multiplicity of laws. OHADA aims at creating an enabling business environment and legal certainty. This is a long overdue initiative which is supportive of commercial transactions that will in the longer term generate wealth and social stability for its market. The major instrument available for the harmonization of the various business laws of all the Contracting States is the Uniform Acts covering areas such as economic interest groups, recovery procedures and enforcement measures, arbitration, accountability and collective insolvency proceedings. These Uniform Acts are directly applicable in all the states and overrules all existing laws of the Contracting States in cases of conflict. This work focuses on the Uniform Act on collective insolvency proceedings in the context of international insolvency law developments. In making this assessment other international or regional treaties or conventions of similar forms are compared. 1.1 Background The OHADA Treaty was signed in 1993 and entered into force in 1995 with the main objective being the harmonization of African business law. The organization now has sixteen members from Franco•phone part of Africa namely: Benin, Burkina Faso, Cameroon, Central African Republic, Comoros, Congo, Ivory Coast, Gabon, Guinea, Guinea Bissau, Equatorial Guinea, Mali, Niger, Senegal, Chad and Togo. The Democratic Republic of Congo (DRC) will be the seventeenth member by the end of June 2004 to ensure that the country’s effort towards seeking investment from the Western world will yield results.1 These are countries that share a common legacy of the French language and legal system.2 OHADA has four major institutions namely the Council of Ministers responsible for administration and legislation; the Permanent Secretariat with a permanent secretary; the Common Court of Justice and Arbitration (CCJA) responsible for settlement of disputes on interpretation and application of Uniform Acts and also for arbitration and the Regional Training Centre for Legal Officers. Considering the benefits to be derived from a unified business law in Africa efforts are under way to broaden the membership of the organization to incorporate Anglo•phone Africa. This 1 OHADA Newsletter: at << www.ohada.com >>, visited 24th February 2004. 2It should be noted from the outset that the authentic text of the OHADA Treaty and the Uniform Act are in French. © International Insolvency Institute - www.iiiglobal.org 1 is a sign that the campaign for reformation of the laws of Africa has gained favour and OHADA has created the desired framework and setting within which such a reform can take place. The treaty in article 14 provides that any issue regarding the interpretation and enforcement of the Treaty and any of the Uniform Acts shall rest solely with the Common Court of Justice and Arbitration (the Court) in Abidjan. The Treaty also accords the Court an appellate jurisdiction in all business issues pertaining to the application of the Uniform Acts raised in the Contracting States. This presupposes that the enforcement of the Uniform Acts rests with the relevant courts in the various Contracting States. Article 21 of the Treaty makes provision for the referral of any contract litigation in which the parties apply an arbitration clause to the Court if any of the parties is domiciled in a Contracting State or the contract is to be enforced partially or in its entirety in a Contracting State. These provisions, together with the direct applicability provided for in article 10, have established a formidable foundation on which the Continent can develop the much needed uniformity in its diverse legal systems. 1.2 Overview of the OHADA Treaty The OHADA treaty has sixty•three articles divided into nine chapters or titles with its main objective being ‘the harmonization of business laws in the Contracting States by the elaboration and adoption of simple modern common rules adapted to their economies, by setting up appropriate judicial procedures, and by encouraging arbitration for the settlement of contractual disputes.’3 The objective of the Treaty therefore is to remedy the legal and judicial insecurity that prevail in Contracting States by modernizing these laws to be in line with international standards. The means for achieving this is through the enactment of Uniform Acts 4 which are “directly applicable and overriding in the Contracting States notwithstanding any conflict they may give rise to in respect of previous or subsequent enactment of municipal laws.”5 Currently there are seven Uniform Acts in operation covering the areas of: General Commercial Law, Commercial Companies and Economic Interest Groups all of which came into force in 1998. The rest are Uniform Act on Arbitration, which entered into force in June 1999, Uniform Act on Recovery Procedures and Measures of Execution adopted in April 1998 and came into force in July 1998, the Uniform Act on Accountability Law and the Uniform Act Organising Collective Proceedings for Wiping off Debts which entered into force in January 1999. There are three proposed acts, which are to cover the areas of contracts regarding the carriage of goods, employment law and sales to Consumers6. For the purposes of this paper the Uniform Act Organising Collective Proceedings for Wiping off Debts (the Uniform Act) is singled out for discussion. 2. The Uniform Act Organising Collective proceedings for the Wiping off Debts This Act was adopted in April 1998 and came into force in January 1999. It provides for three types of collective proceedings for individuals and companies as stated in article 1, ‘This Uniform Act organizes collective proceedings for preventive settlement, legal redress and liquidation of the property of a debtor in order to wipe off his debts.’(Emphasis added). According to the Act, preventive settlement ‘shall be proceedings aimed at avoiding the 3 OHADA Treaty: Article 1 4 ibid article 5 5 ibid article 10 © International Insolvency Institute - www.iiiglobal.org 6 Business Law in Africa: OHADA and the Harmonisation Process. Pp 285•7 2 cessation of payments or the cessation of activity by a company or at making it possible to wipe off its debts through a preventive composition agreement.’7 Legal redress shall be ‘proceedings aimed at safeguarding a company and at wiping off its debts through composition with creditors.’8 And liquidation is defined as ‘proceedings aimed at selling the assets of a debtor in order to pay his debts.’9 The framework for these three proceedings has been clearly laid down in the act. The preventive settlement to begin with, is a reorganization measure and it is to be initiated by the debtor who has to attach a composition agreement for redress of the company10 and according to article 2(1) II the debtor must be ‘facing a difficult but not irremediable economic and financial situation’. The inference here is that the debtor should not wait till it becomes insolvent before applying for preventive settlement. Upon submission of the composition agreement to the competent court, that is, the court within whose jurisdiction the debtor has its registered office or principal place of business11, the court appoints an expert to appraise the economic and financial situation of the company and the prospects for reorganization.12 The initiation of preventive settlement shall suspend or prohibit all pending lawsuits and this suspension applies to secured and unsecured creditors alike. This rule has only a few exception, among which are pending lawsuit ‘of creditors due wages’ and for acknowledgements of rights or disputed debts. There shall be no remedies at law for such suspended lawsuits. 13 Article 11 prohibits the debtor, under penalty, from making any payments or redeeming any securities during the appraisal by the expert except under the authorization of the President of the competent court. Upon ratification of the composition agreement the role of the expert is terminated and the court appoints receiver and assignee(s) responsible for the supervision of the execution of the composition agreement.
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